Airline market under pressure as expected losses approach annual net premium levels

By Michael Jones

Feb 13 - (The Insurer) - A number of aviation incidents over the past six weeks have placed significant pressure on the airline segment as market loss estimates approach annual net premium levels, multiple senior aviation market sources told The Insurer.

• YTD insured market loss expectations close to circa $1.6bn annual net premium

• Prospect of brief pause to market softening

• Pressure on second tier of market could spark withdrawals

Since 29 December, the market has suffered two sizeable liability losses from the Jeju Air and American Airlines disasters, alongside a number of smaller but still significant events including the Air Busan fire and Bering Air crash.

Four senior aviation market sources said that at top end of preliminary estimates, losses from these incidents are close to reaching the airline market’s circa $1.6bn in net annual premium.

The American Airlines crash is the most significant insured loss incident so far. Sixty passengers and four crew members were killed after a mid-air collision with a US military helicopter near Reagan Washington National Airport.

Three senior aviation broking market sources said that preliminary liability loss expectations for the incident sit at around $15mn per passenger, equivalent to an overall loss of around $900mn.

As yet, no official loss reserve has been set by the placement lead, Starr Insurance.

That incident followed South Korea’s worst-ever airline disaster after a Jeju Air Boeing 737-800 crashed at Muan International Airport on 29 December, killing all 175 passengers and four of the crew.

As of mid-January, preliminary market loss estimates for the Jeju Air incident had coalesced around a range of $200mn to $250mn.

At the time, certain sections of the market not involved with the placement had suggested a loss closer to $400mn. This week, one source speaking on the condition of anonymity said that expectations have moved slightly closer towards the circa $400mn figure.

Last week’s Bering Air accident in Alaska will also add to the recent loss burden. The flight disappeared on 6 February and was found the next day by the US Coast Guard. All 10 passengers died.

Two aviation market sources said it that while it was too early to set expectations, given that all the passengers were Alaskans the liability loss would likely be notable.

These three losses were also accompanied by the circa $38mn total loss from the Air Busan jet that caught fire on 29 January.

In total, the top end of loss expectations now sits around $1.4bn to $1.5bn, very close to exceeding the circa $1.6bn in net annual premiums in the airline market.

Given expectations that airline market premiums will also contribute to losses from the ongoing aviation lessor cases, three sources said the market would almost certainly suffer a loss in 2025.

Potential for market withdrawals

While some smaller airline placements have renewed with double-digit rate reductions since the start of 2025, underwriting sources said loss expectations would soon put the brakes on market softening.

And, for the first time in a number of years, the prospect of airline market withdrawals looks very real.

The pressure will be even more pronounced for what two sources described as the second tier of the market – those that exclusively offer follow capacity.

They explained that market conditions for these players have become increasingly unattractive due to rate softening and increasing placement verticalisation.

At last year’s airline all-risks renewals, leaders offered rate reductions of around 15 percent, but oversubscribed placements meant that price reductions in the follow market were often well in excess of that figure.

Whether any of these players do withdraw from the market will determine whether market softening remains on pause or resumes later in 2025, four senior market sources said.